Clients often ask us what is a Real Estate Investment Trust and how it might benefit their investment portfolio.
REITs are a particularly attractive opportunity for those seeking a steady-stream passive income without the responsibilities of direct property investments. Although we’ve created this REIT overview to give you a general understanding of the concept, our ActOn Wealth financial planners are available to explore this with you in more detail. As such, be sure to reach out to our team to find out more about REITs and wealth creation in general.
A Real Estate Investment Trust is a company that owns, manages, or funds multiple properties or assets that grow in value over time and produce a rental return. Many REITs trade on the stock exchange. In Australia, REITs typically involve retail, commercial and/or industrial developments and assets. For example, there’s a very good chance a REIT owns or manages the shopping malls, petrol stations, retirement villages or holiday parks in your local area.
Real Estate Investment Trusts work by charging rent to property tenants and therefore generating revenue. When investing in a REIT, you essentially purchase a unit within the trust, thus becoming a stockholder who receives a share of any income generated.
Typically a REIT investor will have an established portfolio and are looking to diversify either to gain exposure to the real estate market or to help offset their investment risk.
One of the most attractive benefits of REITs is the exposure they can provide to high-end, big-project properties. Few of us have the means to generate a passive income by purchasing, for example, a holiday park. With REITs, however, we not only gain exposure to the holiday park but a suite of assets that offer strong portfolio diversification.
Unlike direct property investment, REITs assume responsibility for all management, meaning you don’t have the day-to-day burdens of a landlord. Liquidity also tends to make REITs attractive; buying, managing and selling REIT shares is more agile than doing the same with property.
Growth is driven by influences such as building occupancy rates, increased rental charges and, of course, the REIT acquiring more assets.
Just like a direct property investment, REITs can be sensitive to interest rates, the state of the property market at the time and any dividends are taxed as per your ordinary income.
A wise investor will be guided by a transparent and trustworthy financial advisor who ensures everyone maintains an ‘eyes wide open’ approach. That said, the most common REIT pitfall is investors assuming that properties never devalue. On the contrary, property prices can fluctuate, it’s just that they are very rarely bought and sold at any great frequency. As a result, this can create a false pretence that a property’s price never goes down. As ever, it’s important to take the long-term view and adhere to that golden rule of portfolio diversification.
As your experienced financial advisors, we ask all the questions on your behalf and help you make an informed decision. Below are just some of the areas that interest us when considering suitable REITs:
Look for value indicators such as:
It’s important to understand that no two REITs are equal – this kind of investment requires the same level of scrutiny and consideration as you would any other addition to your portfolio.
When it comes to how to invest in a Real Estate Investment Trust, you have options:
Our team is available to better explain these options and help you determine the best choice for your situation and goals and broader estate planning.
With the highest rating possible in the financial industry, our wealth creators are well-geared to help you diversify your investments. We take time to really understand the type of investor you are or want to be, your current situation and your future wealth goals. REITs can form part of our investment advice, but so too can broader property and estate planning, superannuation options and more.
REITs and indeed any type of investment need careful, considered planning. Our expert team is available to guide you through REITs and help develop an investment portfolio that is right for you and your needs. Contact us today for a complimentary consultation and let’s see how we can help you achieve your financial growth goals.